Can SKS Change Its Spots?

Thursday, April 19, 2012

Going by some metrics, it’s tempting to believe that SKS Microfinance, once the darling and later the bad boy of the sector, is out of the woods. The company is well capitalised. Even after writing off over Rs 1,000 crore worth of microloans, its capital adequacy ratio is more than twice the 15 percent norm. The recovery rates outside Andhra Pradesh—it has 4 million customers outside AP—have been good.

In the last three months, it raised over Rs 800 crore through securitisation deals—selling the recievables from the customers to institutions which have been reticent ever since the crisis. The market seems to be responding. Year to date (March 22) the company’s share prices have risen 48 percent, leading to headlines such as ‘SKS Microfinance: Making a comeback?’; ‘Why SKS Microfinance is back on investor radar’, and ‘Is the worst over?’

The worst is probably not over. The more optimistic views don’t account for the fact that raising funds through securitisation was not its only—or even the most important—problem. The problem is whether it can transform itself into a more cost-effective, diversified organisation, and whether it can patch up its tattered reputation. “SKS was never as bad as the media reports made it to be. And again, now, it’s not as good as everyone makes it to be,” says a venture capitalist who was involved with SKS prior to its listing.